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Why Is Phillips 66 (PSX) Down 2.1% Since Last Earnings Report?

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A month has gone by since the last earnings report for Phillips 66 (PSX - Free Report) . Shares have lost about 2.1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Phillips 66 due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Phillips 66 Q2 Earnings Beat on Lower Operating Costs

Phillips 66 reported second-quarter 2020 adjusted loss per share of 74 cents, narrower than the Zacks Consensus Estimate of a loss of 99 cents. The company reported adjusted earnings of $3.02 per share in the year-ago quarter.

Quarterly revenues totaled $11.2 billion, down from the year-ago quarter’s $28.5 billion. Moreover, the top line missed the Zacks Consensus Estimate of $14.9 billion.

The better-than-expected earnings were supported by lower operating costs and expenses. However, the positives were partially offset by lower midstream, chemicals and refining contributions. Lower refined product demand due to the coronavirus pandemic affected the company’s businesses in the second quarter.

In July, it loaded the first export cargo from the South Texas Gateway Terminal. The West Coast retail marketing JV acquired 95 sites, which will likely boost its exposure to retail margins. In the second quarter, the company started full operations of the Gray Oak Pipeline. Moreover, it incorporated 7.5 million barrels of storage capacity at Clemens Caverns in the Sweeny Hub.

Segmental Results

Midstream

The segment generated adjusted pre-tax quarterly earnings of $245 million, down from $423 million in the year-ago quarter. Profits from NGL and Other, and DCP Midstream significantly decreased in the second quarter. Also, lower pipeline and terminal volumes affected its transportation income.

Chemicals

Adjusted pre-tax earnings of $89 million were down from $275 million in the prior-year quarter. CPChem’s O&P business was affected by lower sales prices and higher feedstock costs. Its O&P utilization rate came in at 103%.

Refining

It reported adjusted pre-tax loss of $867 million against year-ago earnings of $983 million. This underperformance was attributed to reduced volumes and weak margins. The segment’s realized refining margins on a worldwide basis fell to $2.60 per barrel from the year-ago quarter’s $11.37. Moreover, the same in Atlantic Basin/Europe and West Coast fell to $1.53 and $5.05 per barrel from the year-ago levels of $10.85 and $9.94, respectively.

Marketing and Specialties

Pre-tax earnings decreased from $293 million in the year-ago quarter to $286 million.

While realized marketing fuel margins in the United States increased to $1.75 per barrel from the year-ago quarter’s $1.53, the same in the international markets decreased to $5.07 from the year-ago level of $6.03.

Costs and Expenses

Total costs and expenses for the second quarter significantly decreased to $11,628 million from $26,689 million in the year-ago period. While the cost of purchased crude oil and products, as well as operating expenses declined from the year-ago levels, SG&A costs marginally increased.

Financial Condition

In the reported quarter, Phillips 66 generated $764 million of cash from operations. Its capital expenditures and investments totaled $939 million.

As of Jun 30, 2020, cash and cash equivalents were $1.9 billion, reflecting a sequential increase from $1.2 billion. Total debt rose to $14.4 billion from $13 billion in first-quarter 2020. The company’s debt to capitalization was 38%. It increased the one-year term loan facility to $2 billion in April, with $1-billion undrawn capacity remaining at second quarter-end.

Outlook

The company is adding two 150,000 bpd fractionators for expanding the Sweeny Hub. The additional fractionators, backed by long-term commitments, are expected to commence operations in the fourth quarter. Following the expansion project completion, Sweeny Hub will have a massive 400,000 bpd fractionation capacity.

Its marine export terminal is expected to be completed by first-quarter 2021 and have two deepwater docks with a throughput capacity of up to 800,000 bpd. It will also have a storage capacity of 8.6 million barrels.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -54.04% due to these changes.

VGM Scores

At this time, Phillips 66 has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Phillips 66 has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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